Ascend when conditions are right. Seek shelter when they are not.
BCM sees the markets through the lens of an advisor. With decades of experience working with clients, we have learned a thing or two. We know the expectations, fears and emotions that emerge when it comes to investing. Investors expect that an advisor or asset manager will grow their money in good times, but seek to protect their assets in bad times. They want us to make the buy and sell decisions for them.
Our philosophy is based on four main principles:
1. Deliver What Investors Expect™Throughout years of working with investors, we have learned what they expect when it comes to the markets and managing their money. As an industry, we keep forgetting we are dealing with humans and their emotions. Investors expect that their financial advisor or active investment manager will grow their money in up or even sideways markets. More importantly though, they expect that the advisor or manager will also seek to protect their money on the downside. Unfortunately, this is not always the case. At BCM, we build and manage all of our portfolios with these expectations in mind.
- Return expected by investors if equity markets are UP 20% 15%
- Return expected by investors if the equity markets are DOWN 20% 2%
- If the market is DOWN 20%, investors expect their equity portfolios to outperform the market by 22%
Source: Franklin Templeton Global Investor Sentiment Survey. March 2015. Please click here to see disclosure page for more information.
2. Emotion drives investor actions.Investors tend to make the worst decisions at the worst possible times. When markets falter, fear consumes them and eventually they panic, selling at or near the bottom of a bear market. Then, as the market recovers, it takes so long for the client to feel comfortable reinvesting, they miss a significant portion of the upside, preventing them from recovering their losses.
3. Investors often misinterpret risk.We believe that investors are not risk averse, they are loss averse. The industry’s primary measurement of risk, standard deviation, can be incomplete and is too often misinterpreted by the average investor as maximum drawdown. We focus on the risk we believe investors care about most – losing a lot of money.
Investors who describe investing as involving the risk of losing money.
4. Large losses can devastate a portfolio.Whether you’re an investment professional or individual investor, large market losses can devastate any portfolio, hindering your long-term results. Why? When a portfolio experiences a large loss, a disproportionate gain is required just to get back to where you started. This investment math further supports the investor’s view of risk and emotion-driven decisions.
One size does not fit all.We have three systems designed to meet most investors’ mandates. Our growth portfolios each have their own method of risk management and seek to provide large loss avoidance in bear markets.
Technical mountain climbing:
Carefully traversing a mountain using protective harnesses, ropes and anchors, often as part of a team.
Beaumont investment approach:
Participating in the markets while seeking to protect against large market losses through tactical and dynamic management.